MUMBAI: Indian Prime Minister Narendra Modi to follow through on a pledge to cut corporate taxes may need to wait a bit longer. In his last full budget before 2019 elections, Modi is facing a revenue squeeze that may make it difficult to deliver on a promise to lower the basic corporate tax rate over time to 25 percent from 30 percent. It’s a catch-22 situation for the premier, who is also trying to lure foreign investors at a time when the U.S., U.K. and other countries are lowering business taxes. Modi pledged in 2015 to bring down corporate taxes over four years, but businesses are still waiting for a roadmap on how that will happen. It’s part of his mission to improve India’s investment climate: he is also reducing red-tape, spurring the liquidation of assets to speed-up the recovery of bad loans, and introduced a national sales tax last year to cut down business costs. India is ranked 119 out of 190 countries when it comes to ease of paying taxes, according to the World Bank’s Doing Business index.
Tax competition around the world is heating up. The U.S. lowered corporate taxes by 14 percentage points to 21 percent, with companies like Apple Inc., Wal-Mart Stores Inc. and JPMorgan Chase & Co. announcing plans to raise investment, hiring or wages. The U.S. has made corporate tax rates competitive and India needs to respond,” said Jayesh Sanghvi, a tax partner at EY in Hyderabad. If it doesn’t, companies will examine arbitrage opportunities given the 10-15 percentage point difference, he said.
